Silicon Valley bank is not Lehman

If there is one thing almost all observers of the economic landscape agree on, it is that the problems facing the US economy in 2023 are very different from those it faced in its last crisis, in 2008.

So, we were facing the

;

Signs at the entrance of a Silicon Valley Bank branch in San Francisco, (AP Photo/Jeff Chiu)

Currently, banking has gone into the background and the big problem seems to be inflation

driven by excessive demand in relation to the available supply.

There were some echoes of past follies, because there always are.

The cult of

shares some obvious traits with the rise and fall of subprime mortgages, with people drawn into complex financial deals they don't understand.

But no one expected a repeat of those

in which the global financial system seemed to hit rock bottom.

However, it suddenly feels like we're replaying some of the same old scenes.

Silicon Valley Bank was not one of the largest financial institutions in the country, but neither was Lehman Brothers in 2008.

And no one paying attention in 2008 can help but

at the sight of an old-fashioned bank run.

But SVB is not Lehman, and 2023 is not 2008.

We are probably not facing a systemic financial crisis.

And while the government has stepped in to stabilize the situation, taxpayers probably won't have to shell out large sums of money.

To understand what has happened, you have to understand the reality of what SVB was and what it did.

Silicon Valley Bank

presented itself as "the bank of the global economy of innovation", which could lead one to think that it invested mainly in highly speculative technological projects.

Actually, while it offered financial services to start-ups, it didn't lend them a lot of money, as they were often full of venture capital.

Instead, the cash flow was going in the opposite direction, with tech companies pouring

- sometimes in return, but largely, I suspect, because tech people thought of SVBs as their kind of bank.

The bank, in turn, put much of that money into boring and extremely safe assets, mainly long-term bonds issued by the US government and government-backed agencies.

It made money, for a while, because in a world of low interest rates, long-term bonds tend to pay higher interest rates than short-term assets, including bank deposits.

But SVB's strategy was subject to

First, what would happen if short-term interest rates rose?

(The spread on which SVB's profits depended would disappear, and if long-term interest rates also rose, the market value of SVB's bonds, which paid lower interest than the new bonds, would fall, creating large losses of And that, of course, is exactly what has happened when the Federal Reserve has raised rates to fight inflation.

Second, although the value of bank deposits is federally insured, that insurance only goes up to $250,000.

SVB, however, got its deposits mainly from

with multi-million dollar accounts – at least one client (a cryptocurrency company, of course) had $3.3bn in SVB.

Since SVB's clients were uninsured, the bank was vulnerable to a run on the bank, in which everyone rushes to withdraw their money while there is still some left.

And it happened.

And now that?

Even if the government had done nothing, the fall of SVB would probably not have had huge economic repercussions.

In 2008, there were selloffs of entire asset classes, especially mortgage-backed securities;

since SVB investments were so boring, similar consequences would be unlikely.

The main damage would come from the interruption of business activity as companies find themselves unable to dispose of their cash, which would be worse if the fall of SVB led to the massive withdrawal of deposits from other medium-sized banks.

That said, for precautionary reasons, government officials felt - understandably - that they needed to find a way to guarantee all of SVB's deposits.

It is important to note that this does not mean bailing out shareholders:

SVB has been seized by the government, and its capital has been wiped out.

It means saving some companies from the consequences of their own foolishness in putting so much money in one bank, which is infuriating, especially since many tech guys were outright libertarians until they needed a bailout themselves.

In fact, probably none of this would have happened if SVB and others in the industry had not successfully lobbied the Trump administration and Congress for a loosening of banking regulations, a move rightly condemned at the time by Lael Brainard, who just to become the Biden administration's chief economist.

The good news is that taxpayers probably won't have to shell out a lot of money.

It is not at all clear that SVB was actually insolvent;

what he couldn't do was raise enough cash to meet a sudden exodus of depositors.

Once the situation stabilizes, your assets will probably be worth enough, or nearly enough, to

without an infusion of additional funds.

And then we can go back to our regular crisis programming.

c.2023 The New York Times Company

look too

Banking crisis in the United States: the Treasury claims that Silicon Valley customers will have access to "all their money"

Three lessons from the failure of Silicon Valley Bank